2022 (11) TMI 600 - HC - Money Laundering

Money laundering - provisional attachment orders - proceeds of crime - Impact that a moratorium that comes into effect in terms of Section 14 of the Insolvency and Bankruptcy Code, 2006 on the powers of the Enforcement Directorate (ED) to enforce an attachment under the provisions of the Prevention of Money Laundering Act, 2002 - freezing of bank accounts of petitioner - HELD THAT - While proceeding to attach the tainted property, the respondents are not in essence effacing the property rights that may be claimed by an individual. It is a symbolic taking over of the custody of the property and for its preservation till such time as the proceedings that may be initiated under the PMLA come to a conclusion. Attachment thus is not liable to be viewed as an effacement of all rights that may exist or be claimed to be exercisable in respect of a property. Attachment essentially seeks to stamp the tainted property of having been found to represent proceeds of crime pursuant to the adjudicatory process which is undertaken under Sections 5 and 8 of the Act. It is essentially a seizure of property bringing it into the constructive possession of a court or as in this case, the authorities under the PMLA. An attachment is essentially aimed at preventing private alienations. It does not confer a title on the authority which has taken that step. The attachment only enables the authorities under the act to restrain any further transactions with respect to the aforesaid property till such time as a trial with respect to the commission of an offence of money laundering comes to an end. Attachment under the PMLA does not result in an extinguishment or effacement of property rights. It is essentially a fetter placed upon the possessor of that property to deal with the same till such time as proceedings under the aforesaid enactment come to a definitive conclusion on the question of confiscation - it is essentially an action aimed at bringing into the control of a court or an authority, property over which multiple claims may exist. In any case, since the act of attachment does not result in the effacement of rights in property, it would clearly stand and survive outside the scope of a moratorium or an action relating to an action in respect of a debt due or payable. The attached property comes to vest in the Union Government only upon the passing of such an order as may be passed by the special Court either under sub-Sections 5 or 7 of Section 8 or Sections 58B or Section 60(2)(a). The provisional attachment of properties would in any case not violate the primary objectives of Section 14 of the IBC. Non-obstante clause in the IBC and PMLA - HELD THAT - While there can be no doubt that where two special statutes incorporate non obstante clauses it is the later enactment which would ordinarily or normally prevail, the same cannot possibly be recognised as constituting the solitary principle of interpretation which would apply or an inviolable rule. It must be fundamentally borne in mind that a non obstante clause in any statute is looked at principally in case of an asserted irreconcilable conflict between statutes. However, that does not preclude courts from identifying or discerning the core objectives of the competing statutes - More importantly and while dealing with the question which arises for determination in this case, the Court would have to bear in mind the undisputed fact that while the PMLA was originally promulgated on 01 July 2005, the IBC came to be enforced with effect from 28 May 2016 and on subsequent dates when its various provisions were separately enforced. Section 238 of the IBC came to be energised in terms of the notification dated 30 November 2016 and was ordained to come into effect from 01 December 2016. Section 32A of the IBC on the other was introduced by Amending Act No.1 of 2020 with retrospective effect from 28 December 2019. The introduction of Section 32A constitutes an event of vital import since it embodies a provision which effectively shut out criminal proceedings including those under the PMLA upon the CIRP reaching the defining moment specified therein. However, when the Legislature introduced the said provision, it was conscious and aware of the fact that the provisions of the PMLA could be enforced against the properties of a corporate debtor notwithstanding the pendency of the CIRP - The Legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted. The Court comes to the conclusion that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA - while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in 2005, the Court is of the considered opinion that the extent to which the latter was intended to capitulate to the IBC is an issue which must be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC. The Court has independently come to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A. It is manifest that an order of attachment when made under the PMLA does not result in the corporate debtor or the Resolution Professional facing a fait accompli. The statutes provide adequate means and avenues for redressal of claims and grievances. It could be open to a Resolution Professional to approach the competent authorities under the PMLA for such reliefs in respect of tainted properties as may be legally permissible. The challenge to the Provisional Attachment Orders as well as orders of confirmation passed by the Adjudicating Authority on grounds as raised fails and stands negatived - Petition dismissed.

Summary

Issues Involved:
1. Impact of Section 14 of the Insolvency and Bankruptcy Code (IBC) on the powers of the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).
2. Validity of Provisional Attachment Orders (PAOs) and their confirmation by the Adjudicating Authority.
3. Jurisdiction of the National Company Law Tribunal (NCLT) and the Adjudicating Authority under PMLA.
4. Interplay between IBC and PMLA, specifically regarding the moratorium and attachment of properties.
5. Interpretation of non obstante clauses in IBC and PMLA.
6. Rights of third parties and secured creditors in the context of attached properties under PMLA.

Detailed Analysis:

1. Impact of Section 14 of IBC on ED's Powers under PMLA:
The court examined whether the moratorium under Section 14 of the IBC, which prohibits the institution or continuation of suits or proceedings against the corporate debtor, affects the ED's power to attach properties under the PMLA. It was argued that proceedings under PMLA are civil in nature and thus fall within the ambit of Section 14. However, the court concluded that the moratorium under IBC does not preclude the ED from attaching properties under PMLA, as PMLA proceedings are aimed at confiscating proceeds of crime, not recovering debts.

2. Validity of PAOs and Their Confirmation:
The petitioner challenged the PAOs dated 08 July 2020 and 05 August 2020, and their subsequent confirmation by the Adjudicating Authority on 01 January 2021 and 29 January 2021. The court noted that the PAOs were issued in the exercise of powers under PMLA and were aimed at preserving properties alleged to be proceeds of crime. The court upheld the validity of these orders, stating that they were not impacted by the moratorium under IBC.

3. Jurisdiction of NCLT and Adjudicating Authority under PMLA:
The court addressed the preliminary objections regarding the jurisdiction of NCLT and the Adjudicating Authority under PMLA. It was contended that NCLT does not have the jurisdiction to rule on the validity of PAOs under PMLA. The court agreed, stating that the NCLT's jurisdiction is limited to matters under IBC, and it cannot adjudicate on the validity of actions taken under PMLA.

4. Interplay between IBC and PMLA:
The court examined the conflicting views on the interplay between IBC and PMLA, noting that while IBC aims at insolvency resolution and protection of creditors' interests, PMLA is focused on confiscating proceeds of crime. The court concluded that both statutes operate in distinct fields and serve different legislative purposes. Hence, the moratorium under IBC does not bar actions under PMLA.

5. Interpretation of Non Obstante Clauses in IBC and PMLA:
Both IBC and PMLA contain non obstante clauses, leading to a conflict regarding which statute prevails. The court observed that while the non obstante clause in IBC generally prevails due to it being a later statute, the specific provisions of Section 32A of IBC, introduced in 2020, delineate the extent to which PMLA's provisions are overridden. Section 32A provides that the powers under PMLA cease only after a Resolution Plan is approved or a liquidation measure is adopted.

6. Rights of Third Parties and Secured Creditors:
The court recognized the rights of third parties and secured creditors in properties attached under PMLA. It was noted that bona fide third parties and secured creditors have legal avenues to seek the release of attached properties. The court emphasized that attachment under PMLA does not confer a superior right to the ED over third parties or secured creditors, and such claims must be adjudicated independently.

Conclusion:
The writ petition was dismissed, and the court upheld the validity of the PAOs and their confirmation by the Adjudicating Authority. The court clarified that the moratorium under IBC does not preclude the ED from attaching properties under PMLA, and both statutes operate in distinct fields. The petitioner was granted the liberty to seek the release of attached properties in accordance with the law, and the rights of the ED over the attached properties were restricted as per the court's decision and the judgment in Axis Bank.